World Bank chops Asia-Pacific growth

PERSPECTIVE:Despite cutting the growth forecast, a chief economist for the World Bank said East Asia’s rates were ‘the envy of many in the developed world’

AFP, SINGAPORE

A boat travels along the river as haze blankets over the Raffles place financial district in Singapore yesterday. The World Bank yesterday cut its growth forecast for countries in East Asia and the Pacific to 7.2 percent, down from 8.3 percent last year, due to the fragile global economy.

Photo: AFP

The World Bank yesterday slashed its growth forecast for developing countries in East Asia and the Pacific for this year to 7.2 percent, dragged down by China’s worst economic performance in 13 years.

It said China’s economy would grow just 7.7 percent this year, down from 9.3 percent last year and its slowest rate since 1999, but added that stimulus measures would help push it back above the crucial 8.0 percent mark next year.

The GDP projections for this year in a report called the East Asia and Pacific Data Monitor were down from a May forecast of 7.6 percent growth in the region and 8.2 percent in China.

The report comes as the Washington-based World Bank and IMF prepare to hold their annual meetings at the end of the week.

The G7 advanced economies are also scheduled to meet to discuss the global outlook.

Despite the downgraded numbers, Bert Hofman, the World Bank chief economist for East Asia and the Pacific, said: “Our main forecast is still that China will have a soft landing.”

He also told journalists in Singapore that while there is a risk of a major slowdown, “we think it’s small, not least because of the policy space that the authorities still have and the likelihood that they will indeed use it.

“They have enough fiscal space, they still have some monetary space so they could revamp the economy ... if and when needed,” he said.

Hofman said that China was being hit by a “double whammy” of an export slowdown and softer domestic demand.

In East Asia and the Pacific, regional GDP growth will be the slowest since last year, even worse than at the peak of the global financial crisis in 2009, Hofman said.

However, the bank said this should rebound to 7.6 percent next year, driven by domestic demand. It warned that a worsening of the eurozone debt crisis, problems in the US and a further slowdown in China are major risks.

Hofman said East Asia and the Pacific’s growth rates are “still the envy of many in the developed world” and its share of the world economy has tripled in two decades to nearly 18 percent of global output.

The region covered by the new forecast comprises China, Indonesia, Malaysia, the Philippines, Thailand, Vietnam, Cambodia, Fiji, Laos, Mongolia, Myanmar, Papua New Guinea, the Solomon Islands and East Timor.

The European Central Bank’s pledge vigorously to defend the euro and its pledge of a massive bond-buying program have brought some calm to global markets, but the World Bank said yesterday the situation could still worsen.

“With a ‘major’ crisis, GDP growth could drop by more than two percentage points in 2013,” the report said.

Hofman said such a scenario would involve more than one member exiting the eurozone.

About 15 percent of East Asia’s trade goes directly to Europe and financial turmoil sparked by a major crisis in the eurozone could dampen risk-taking and dent investments and private consumption, Hofman added.